Germany’s IFO institute is set to publish its business survey for March on Wednesday at 09:00 GMT, with forecasts indicating a decline in key indices: the Business Climate Index is expected to fall to 86.1 from 88.6 in February, the Current Assessment Index to 86.0 from 86.7, and the Expectations Index to 86.0 from 90.5 [1]. These anticipated weaker readings come as EUR/USD trades around 1.1600, with technical indicators such as the 14-day RSI at 47 suggesting neutral momentum and immediate support at the nine-day EMA of 1.1578, while resistance is at the 50-day EMA of 1.1672 [1].
Danske Bank notes that EUR/USD remains range-bound near 1.16 ahead of the IFO survey release. Recent Euro area PMI data showed a flash composite PMI falling more than expected in March to 50.5 from 51.9, driven by a sharp drop in services to 50.1 from 51.9. Manufacturing PMI rose to 51.4 from 50.8, largely due to longer delivery times and higher input prices, which surged to their highest level since September 2022. Output prices, however, showed only a muted increase [2]. These developments reinforce the ECB’s hawkish bias, keeping upward pressure on short-term EUR rates despite weaker growth signals [2].
The Danske Research Team highlights that ECB officials’ hawkish comments continue to support upward pressure on EUR short-term rates, even as the Euro area faces weaker growth, particularly in services. In Germany, yesterday’s PMI readings showed manufacturing outperforming with rises in new orders and output, but the decline in services and sharp rise in manufacturing input prices remain concerning [2]. The IFO survey is expected to provide further insight into growth and price effects, especially in light of supply distortions from the war in Iran [2].
Market implications discussed in both sources suggest that EUR/USD could remain subdued if the IFO survey data comes as expected, with the Euro facing challenges amid ongoing geopolitical uncertainty and persistent US Dollar resilience due to its safe-haven appeal [1]. Upward pressure on EUR rates persists, but the overall sentiment is cautious given weaker growth signals and rising inflation risks [2].
CONCLUSION
The upcoming German IFO survey and recent Eurozone PMI data point to a mixed outlook for EUR/USD, with weaker growth signals offset by ECB hawkishness and rising inflation risks. While EUR/USD remains range-bound near 1.16, market participants are cautious, awaiting further clarity from the IFO survey and ongoing geopolitical developments. The Euro faces headwinds from subdued business sentiment and service sector weakness, but upward pressure on rates persists due to inflation concerns.